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How Hyperinflation Happens

September 8, 2013 Leave a comment

scandalousmuffin:

How hyperinflation really happens.

Yeah, we are so not Syria.

Originally posted on The Dish:

Syria Inflation

Matthew O’Brien highlights Syria’s hyperinflation:

It turns out you can’t have much of an economy when your country is a war zone, and the regime is attacking civilians. But functioning economy or not, the government still has to pay its bills. So what does it do when there’s nothing to run or tax? Easy: It prints what it needs. That’s what the pariah Assad regime has done to cover the difference between what it has to pay, and what its few remaining patrons have paid it. The predictable result of all this new money chasing fewer goods has been massive inflation.

This is in keeping with the history of hyperinflation:

Hyperinflations tend to happen following wars or revolutions. Now, Weimar Germany and Zimbabwe look like exceptions to this rule, but they’re not really – the former’s resistance to reparations, and the latter’s botched land reform halted economic activity as much as any conflict.

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How Did Detroit Go Bankrupt? And Who Will it Hurt?

Detroit circa 1973.

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Matt Yglesias at Slate breaks down the (less) big city’s bankruptcy:

The basic reason Detroit needs to do this is pretty simple. In 1950 there were 1.85 million people in Detroit. In 1970, it was 1.5 million. In 1990, it was a million flat. By 2010, it was down to 710,000. When your city is shrinking like that, you end up with a tax base that’s inadequate to maintain the fixed infrastructure or to pay off pension costs that were incurred in more prosperous times.

Governing.com has an interactive map in the link showing all municipalities that filed for Chapter 9 bankruptcy protection since 2010, along with local governments that voted to approve a bankruptcy filing:   http://www.governing.com/gov-data/municipal-cities-counties-bankruptcies-and-defaults.html

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WaPo reports the progress on the bankruptcy filings:

The filing begins a one- to three-month process to determine whether the city is eligible for Chapter 9 protection and who may compete for the limited settlement money that Detroit has to offer. But it could be years before the city emerges from bankruptcy.

Also from WaPo, the impact on Detroit’s citizens:

Who gets hurt most?

Detroit is about $18 billion in debt, and will only be able to pay out a fraction of that in the short term. The two main groups of creditors arguing they’re entitled to that money are public employees and retirees, and bond holders. The investors are likely to make out better, since more of that debt is secured; the city will continue to pay water and sewer bondholders. Most of the pension debt has no similar backstop.

City residents will likely suffer a lack of anything other than the most rudimentary public services for a long time, but the impact is likely to be felt most keenly by those who lost a large chunk of the retirement they were counting on.

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Tl;dr The cultural relevance and economic output of Detroit are both underwater and will continue to die. None of the journalists have the balls to say so, but I bet some of them are thinking, “Maybe we should let it die.”

Conservative Watch: Josh Barro

July 18, 2013 1 comment

Josh Barro is the only conservative columnist who has been able to give me pause and keep me engaged and thinking on Twitter. All my favorite libertarian columnists happen to be gay (Greenwald). Not sure what’s up with that.

Josh Barro Josh Barro

@jbarro

Politics Editor at Business Insider. Crotchety young man. jbarro@businessinsider.com

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Via Wikipedia:

Joshua A. Barro is an American opinion journalist and the current politics editor at Business Insider… He has a bachelor’s degree in psychology from Harvard.

Time named Barro’s Twitter feed one of “The 140 Best Twitter Feeds of 2013″, one of ten in the Politics category. In 2012, Forbes selected him as one of the “30 Under 30″ media “brightest stars under the age of 30,” and David Brooks listed him as part of the, “vibrant and increasingly influential center-right conversation.”

Barro describes himself as a neoliberal and a Republican, but has expressed opposition to many policies of the Republican party. He has been described by others as conservative, liberal and libertarian.

Barro lives in Queens, NY. His father is noted macroeconomist Robert Barro. Barro is openly gay and has written in support of gay marriage.

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Paul Krugman on Mitt Romney’s “47% Percent” Gaffe

September 17, 2012 2 comments

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Paul Krugman discusses the “dependent upon government” citizens that Romney refers to in the now viral Mother Jones video inside a private donor meeting:

Actually, if you look at the facts, you learn that the great bulk of those who pay no income tax pay other taxes; also, many of the people in the no-income-tax category are (a) elderly (b) students or (c) having a bad year, having lost a job — that is, they’re people who have paid income taxes in the past and/or will pay income taxes in the future.

↓By the way, I don’t control WordAds content, so I’m sorry if you get finance investment firm ads.

Ezra Klein: Core Inflation Rises at a Whopping 0.1% for July

Via Ezra Klein’s Wonkblog:

Today, the Bureau of Labor Statistics released the latest Consumer Product Index (CPI) numbers, giving the most recent estimate of the rate of inflation. The short version: There isn’t any. The inflation rate for all products grew by a whopping 0.0 percent. When you exclude food and energy prices, as economists frequently do to get the “core” rate of inflation, inflation in July was just 0.1 percent. Indeed, inflation for the past 12 months was only 1.4 percent, well below the Federal Reserve’s target of 2 percent, and core inflation was only 2.1 percent.

My first post that ever got significant attention on the internet was “Fact Checking The National Inflation Association And its Hyperinflation Fear-Mongering.”

I actually wrote it as a response to the NIA video that I originally saw on my former boss’s Facebook wall. In hindsight, it’s probably not a good idea to post sarcastic blog posts on your former boss’s Facebook wall.

My style is more analysis-oriented than sarcasm-based these days, which is more boring, but more along the lines of the stuff I like to read. Hey, I was still right after two years. And Peter Schiff is still crazy.

Weird News Wednesday: Turkeynomics – The Rising Price of Thanksgiving

November 23, 2011 Leave a comment

Matt Ygelsias breaks it down at Slate:

Back in September 2001, annual per capita disposable income was $27,147, and a whole turkey cost $1.162 per pound. (None of these numbers has been adjusted for inflation, so as to isolate turkey inflation from larger price trends.)….

Here in the fall of 2011, per-capita disposable income is up to $37,088, but frozen turkey costs $1.676 per pound, meaning you could buy scarcely more than 22,000 pounds worth of whole frozen birds.

But even with the rising cost of Turkey in general, every November, Turkey demand goes through the roof and prices go down as classic capitalistic competition to snag the most customers ensues.  Compared to the rest of the season, the actual cost now for Turkey should be about 10% cheaper, according to Yglesias.

Fact Checking The National Inflation Association And its Hyperinflation Fear-Mongering.

This is a response to this youtube video with over a half million hits, posted by the mysterious The National Inflation Association:

http://www.youtube.com/watch?v=eb1n1X0Oqdw

First off, it’s always good to ask who is funding the organization and the video production.   From their website http://inflation.us/ (Ooh,  dot us. Flashy domain name. Very patriotic.) I can’t say for sure.

But here’s a good guess:

“One of our missions at the National Inflation Association is to discover and profile companies that we believe will prosper in an inflationary environment. Typically we will bring to you producing, profitable, Gold and Silver companies with strong balance sheets. We believe these stocks have a chance of becoming some of the best performers of the next decade.”  Most of their 22 companies on their stocks page are gold or silver companies.

Now I’m not going to bash Gold and Silver as a means to hedge long-term financial risk, because I’m not an economist.  But here’s an article that does:  http://www.huffingtonpost.com/alan-schram/is-gold-a-good-inflation_b_443927.html “Gold does not generate cash flow (indeed it has a carrying cost for storage, insurance etc.) and does not have any intrinsic value, and therefore it is of dubious value as a long term investment.”  The same thing that gives gold its value, faith, is the same thing that gives money its value.  Makes sense to me.

Onward to the youtube video.

Commentary:

I’m not going to fact check all the numbers, but a lot of the statistics in the video seem to be reasonable.  The video also cites some legitimate facts about the financial crisis and legitimate concerns about the US’s ability to pay for impending SS and Medicare.  But there are a lot of interpretations of these statistics and facts that are misleading, fear-mongering, and just plain wrong.

9:45  “The average American might have to eat less and stop air conditioning and heating their home just to afford gas for their car.”

I like the word ‘might’.  And aren’t we obese and energy-hungry anyway?   Doesn’t a third to a half of our food go into the garbage and not into our mouths and out our ass?   Maybe we shouldn’t have killed the electric car, before the lithium ion battery took off.

10:40  Peter “Dr. Doom” Schiff calls Social Security a Ponzi scheme.

While there are parallels between the concepts, it’s not fundamentally true, because technological advancements have exponentially increased economic output over the last century.   According to Michael Mandel of Business Week:   “The U.S. population has more than tripled since the early 1900s, while the U.S. economic output has gone up by more than 20 times… Assuming that technological progress continues over the next 70 years, and output productivity growth continues over the next 70 years, the finances of Social Security are relatively easy to fix. A fairly minor cut in benefits, combined with a relatively small increase in taxes, will bring the system back into balance again. (the latest Social Security report projects a 75-year deficit of $4.3 trillion. That sounds like a lot of money, but over 75 years it’s roughly $60 billion a year…not chicken feed, but not overwhelming).“

13:18  “The only way our economy can truly recover [from the crisis caused by trillion dollar deficit] is for the government to dramatically slash spending across the board and eliminate unnecessary departments like the Department of Energy… and the Department of Education.”

The video tries to link the rise in private tuition costs to the rise in Dept of Ed. Spending.  I don’t get it.  It also fails to mention that the Dept. of Ed only has 5,000 employees and that most of the increase in spending was because of Bush’s No Child Left Behind.  And Dept of Energy?  Um, isn’t the one that deals with our nuclear waste?

15:42  They try to bash breastfeeding protection laws.  Fail.

16:55  They claim a Republican administration would have supported the health care bill.  Um, no?  From what I remember, the health care bill had to go through extensive Senate reconciliation after the Dems lost their supermajority with Massachusetts.

24:15 “We conservatively believe the real rate of inflation to be 3-4% higher than what is indicated by the CPI.”  Thanks for giving us the formula for how you calculated that.

25:34 Suggestion for fed funds rate to increase to 5.31%  Again, no math evidence.

25:05:  FIRST GOLD PITCH HERE

I skimmed through the next 10 minutes. It was Gold Gold Gold Gold Gold.

37:45  Selective statistics about debt.  You can see the full debt story in chart form here: http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms

Post-WWII our deficit was briefly over 100% relative to GDP.   In the last 30 years, it went up with Reagan and HW Bush and lowered with Clinton.  Obama inherited an 83.4% rate from Bush and it is currently rising.

42:10  The video suggests we “go back to our roots” to fix our economy.  I love 12 hour work days, child labor, sub-minimum wage, and sweatshops.

The rest of the movie was more OMG DEFICIT and Gold Gold Gold Gold Gold.

50:15  I love how the movie links inflation to the “destruction of family values.”  Inflation will soon make a $20 bill worth more as an implement to snort coke out of a hookers ass than its value!

50:38  Somehow the government is “transferring money to Wall Street through inflation.”  Really? I thought it was the deregulation (by the ironically Democratic senate) in the late 90s and early 2000s causing Wall Street to systematically restructure itself into unsustainable pyramid schemes.

The entire movie seems to forget a basic Econ lesson:  Businesses don’t look at national debt and think, “Let’s raise prices!”  Growing economies and demand make prices go up.  A recession—like what’s happening now—makes selling stuff harder, so prices go down.  That’s why inflation is down.

The deficit needs to take a backseat right now to the higher goal of economic growth.  And it’s noteworthy that we borrow from China because they have relatively low lending rates.  Really, what’s China going to do; invade us if we default?  The US and China are economically co-dependent, which is not a great place to be, but safe for the moment.  Right now the Obama administration is attempting to do what it needs to do, focusing on unemployment and GDP growth.  Whether it’s succeeding or not is another post for another day.

[edit]: I wrote a Follow Up Post in response to some of the comments on this page.  Less Sarcasm.  More go suck it, Austrian school of economics:  http://scandalousmuffin.wordpress.com/2011/05/25/nia-article-comment-reax/

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